NAME: ARGIE A. MANLAPAZ
Professor: MA’AM GLIZELLE GOSIM
Section: BS AIS -2A
Date:
DECEMBER
05,2020
Score:
Financial Accounting & Reporting
MIDTERM EXAMINATION
Use the following information for the next two questions:
A, B and C formed a partnership. Their contributions are as follows:
A
Cash
750,000
Accounts receivable
1,500,000
Inventories
Building
Totals
2,250,000
B
1,000,000
C
500,000
1,250,000
1,875,000
2,875,000
1,750,000
Additional information:
 Only ₱875,000 of the accounts receivable are deemed collectible.
 The inventories have a net realizable value of ₱1,125,000 and related accounts payable of ₱375,000 which the
partnership assumes to repay.
 The building is under-depreciated by ₱125,000.
1.
The partners agreed to equalize their interests. Cash settlements among the partners are to be made outside
the partnership. Which of the following statements is correct?
a. A and C pay B ₱250,000 and ₱625,000, respectively.
b. A pays B ₱250,000 while B pays C ₱625,000.
c. C pays A and B ₱625,000.
d. A provides additional ₱250,000 to the partnership.
Solutions:
Cash
Accounts receivable
Inventories
Building
Accounts payable
Net contribution
Equal interest
Cash receipt (payment)
2.
A
750,000
875,000
B
1,000,000
C
500,000
1,125,000
1,750,000
1,625,000
1,875,000
(250,000)
2,750,000
1, 875,000
875,000
(375,000)
1,250,000
1,875,000
(625,000)
Partnership
2,250,000
875,000
1,125,000
1,750,000
(375,000)
5,625,000
5,625,000
-
How much are the capital balances of partners’ A, B and C, respectively, right after the formation of the
partnership?
a. 1,875,000; 1,875,000; 1,875,000
b. 1,625,000; 2,750,000; 1,250,000
c. 1,500,000; 1,500,000; 1,500,000
d. 750,000 ; 1,000,000; 500,000
3.
A and B agreed to form a partnership. The contributions of the partners are as follows:
A
Cash
Inventory
Land
Equipment
B
600,000
20,000
400,000
50,000
Additional information:
 Half of the inventory is unpaid. The partnership agreed to assume the related accounts payable.
 The land has a fair value of ₱700,000 and is subject to a mortgage of ₱100,000. However, B agreed to settle
the mortgage personally.
How much are the adjusted capital contributions of A and B, respectively?
a. 670,000; 690,000
b. 670,000; 700,000
c. 660,000; 700,000
d. 670,000; 600,000
Solution:
A
600,000
10,000 (20k-10KA/P)
Cash
Inventory
Land
Equipment
700,000(fair value)
50,000
TOTAL:
4.
B
660,000
700,000
A and B formed a partnership. The following are their contributions:
Cash
Accounts receivable
Equipment
Total
A, capital
B, capital
Total
A
400,000
100,000
500,000
B
700,000
700,000
500,000
500,000
700,000
700,000
Additional information:
 The accounts receivable includes a ₱30,000 account that is deemed uncollectible.
 The equipment is over-depreciated by ₱50,000. The equipment was obtained by B through financing. The
related loan payable has an unpaid balance of ₱250,000 which the partnership assumes on repaying.
Which partner has the higher capital credit, and how much?
a. A, ₱470,000
b. A, ₱500,000
c. B, ₱500,000
d. B, ₱400,000
Solution:
Cash
A/R (100K-30K)
EQUIPMENT(700K-50K)
TOTAL
LESS:LIABILITIES
LOANS PAYABLE(650K-250K)
ADJUSTED CAPITAL BALANCE
A
400,000
70,000
470,000
470,000
B
650,000
650,000
(250,000)
400,000
5. When property other than cash is invested in a partnership, at what amount should the noncash property be
credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis.
6. A and B formed a partnership. A contributed cash of ₱500,000 while B contributed land with carrying amount of
₱400,000 and fair value of ₱800,000. The land has an unpaid mortgage of ₱200,000 which is assumed by the
partnership. How much is the correct valuation of B’s capital immediately after the partnership formation?
a. 400,000
b. 500,000
c. 600,000
d. 800,000
Solution:
Cash
Land (at fair value)
Total
A
500,000
500,000
Mortgage payable
A, capital
500,000
B, capital (800K –
200K)
Total
500,000
B
800,000
800,000
Partnership
500,000
800,000
1,300,000
200,000
200,000
500,000
600,000
600,000
800,000
1,300,000
7. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even though Mr. A
contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The partners agree that the difference
in the amount of contribution and the amount of credit to the partner’s capital shall be treated as compensation
for the expertise that the partner will be bringing to the partnership. How much is the correct valuation of A’s
capital immediately after the partnership formation?
a. 84,000
b. 92,000
c. 100,000
d. 108,000
Solution:
Cash
184,000
A, Capital (184,000 ÷ 2)
B, Capital (184,000 ÷ 2)
92,000
92,000
8. A and B formed a partnership. The following are their contributions:
A
B
Cash
500,000
Accounts receivable
100,000
Building
700,000
Total
600,000
700,000
A, capital
B, capital
Total
600,000
600,000
700,000
700,000
Additional information:
 The accounts receivable includes a ₱20,000 account that is deemed uncollectible.
 The building is under-depreciated by ₱50,000.
 The building has an unpaid mortgage ₱100,000, but this is not assumed by the partnership. Partner B
promised to pay for the mortgage himself.
How much is the correct valuation of A’s capital immediately after the partnership formation?
a. 460,000
b. 580,000
c. 650,000
d. 720,000
Solution:
Cash
Accounts receivable
(100K – 20K)
Building (700K –
50K)
Total
A, capital
B, capital
Total
A
500,000
B
-
Partnership
500,000
80,000
-
80,000
650,000
580,000
650,000
650,000
1,230,000
650,000
650,000
580,000
650,000
1,230,000
580,000
580,000
9. Mr. A and Ms. B formed a partnership and agreed to divide the initial capital equally even though Mr. A
contributed ₱100,000 and Ms. B contributed ₱84,000 in identifiable assets. The partners agree that the difference
in the amount of contribution and the amount of credit to the partner’s capital shall be treated as cash settlement
between the partners. The compound entry to record the partners’ contributions includes a credit to B’s capital
account in the amount of
a. 84,000.
b. 92,000.
c. 100,000.
d. 108,000.
Solution:
Cash
184,000
A, Capital (184,000 ÷ 2)
B, Capital (184,000 ÷ 2)
92,000
92,000
The cash settlement among the partners is not recorded in the partnership’s books because this is
not a transaction of the partnership but rather a transaction among the partners themselves.
10. If the partnership agreement does not specify how income is to be allocated, profits and loss should be
allocated
a. equally.
b. in proportion to the number of hours they have spent on the business since partnership formation.
c. equitably so that partners are compensated for the time and effort expended on behalf of the
partnership.
d. in accordance with their capital contributions.
11. A and B share in partnership profits and losses on a 40:60 ratio. During the year, A’s capital account has a net
increase of ₱50,000. Partner A made contributions of ₱10,000 and capital withdrawals of ₱60,000 during the year.
How much was the share of B in the partnership profit for the year?
a. 100,000
b. 150,000
c. 200,000
d. 180,000
Solution:
Step 1:
Withdrawals
end.
A, Capital
60,000
10,000
?
50,000
beg.
Additional investment
Share in profit
A, Capital
60,000
10,000
100,000
50,000
beg.
Additional investment
Share in profit (squeeze)
Step 2:
Withdrawals
end.
Step 3: 100,000 ÷ 40% = 250,000 partnership profit
Step 4: B’s share: 250,000 x 60% = 150,000
12. The partnership agreement of A, B and C stipulates the following:
 Partners A and C shall receive annual salaries of ₱12,000 and ₱8,000, respectively.
 A bonus of 10% of profit after salaries but before deduction of bonus shall be given to Partner A, the
managing partner.
 Each partner shall receive 10% interest on average capital investments.
 Any remaining profit or loss shall be shared as follows: 40% to A and 30% each to B and C.
The average capital investments of partners during the year are as follows:
A
₱100,000
B
60,000
C
120,000
The partnership earns profit of ₱100,000.
How much is the share of Partner C in the partnership profit?
a. 47,600
b. 32,200
c. 19,200
d. 33,200
Solution:
A
Amount being allocated
Allocation:
1. Salaries
12,000
2. Bonus (100K - 20K) x 10%
8,000
3. Interest on cap.
(100K x 10%);(60K x 10%);(120K x 10%)
10,000
4. Allocation of remainder:
(100K - 20K - 8K - 28K) = 44K;
(44K x 40%); (44K x 30%); (44K x 30%)
17,600
As allocated
47,600
B
C
Total
100,000
8,000
20,000
8,000
6,000
12,000
28,000
13,200
19,200
13,200
33,200
44,000
100,000
13. The partnership agreement of A and B provides that interest at 10% per year is to be credited to each partner
on the basis of weighted-average capital balances. A summary of B’s capital account for the year ended December
31, 20x1 is as follows:
Balance, Jan. 1, 20x1
Additional investment, July 1
Withdrawal, August 1
Balance, Dec. 31, 20x1
252,000
72,000
(27,000)
297,000
How much is the interest on B’s weighted average capital?
a. 27,675
b. 33,633
c. 37,214
d. 23,322
Solution:
Balance, Jan. 1, 20x1
252,000
12/12
252,000
Additional investment, July 1
Withdrawal, August 1
Weighted average capital
Multiply by:
Interest
72,000
(27,000)
6/12
5/12
36,000
(11,250)
276,750
10%
27,675
14. Red and White formed a partnership in 2003. The partnership agreement provides for annual salary allowances
of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally and losses in a 60/40 ratio. The
partnership had earnings of ₱80,000 for 2003 before any allowance to partners. What amount of these earnings
should be credited to each partner’s capital account?
Red
White
a. 40,000
40,000
b. 43,000
37,000
c. 44,000
36,000
d. 45,000
35,000
Solution:
Red
Amount being allocated
Allocation:
1. Salaries
2. Allocation of remaining profit
(80K profit – 100K salaries) = -20K
(-20 x 60%); (-20K x 40%)
As allocated
White
Total
80,000
55,000
45,000
100,000
(12,000)
43,000
(8,000)
37,000
(20,000)
80,000
15. Fox, Greg, and Howe are partners with average capital balances during 2002 of ₱120,000, ₱60,000, and
₱40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of
₱30,000 to Fox and ₱20,000 to Howe, the residual profit or loss is divided equally. In 2003 the partnership
sustained a ₱33,000 loss before interest and salaries to partners. By what amount should Fox’s capital account
change?
a. 7,000 increase.
b. 11,000 decrease.
c. 35,000 decrease.
d. 42,000 increase.
Solution:
Amount being allocated
Allocation:
1. Salaries
2. Interest on capital
3. Allocation of balance
(-33K – 50K - 22K) = -105K / 3
As allocated
Fox
Greg
Howe
Total
(33,000)
30,000
12,000
6,000
20,000
4,000
50,000
22,000
(35,000)
7,000
(35,000)
(29,000)
(35,000)
(11,000)
(105,000)
(33,000)
16. The partnership agreement of Axel, Berg & Cobb provides for the year-end allocation of net income in the
following order:



First, Axel is to receive 10% of net income up to ₱100,000 and 20% over ₱100,000.
Second, Berg and Cobb each are to receive 5% of the remaining income over ₱150,000.
The balance of income is to be allocated equally among the three partners.
The partnership’s 2003 net income was ₱250,000 before any allocations to partners. What amount should be
allocated to Axel?
a. 101,000
b. 103,000
c. 108,000
d. 110,000
Solution:
Axel
Amount being allocated
Allocation:
1. Bonus to A
First 100K (100K x 10%)
Over 100K [(250K - 100K) x 20%]
2. Bonus to Berg and Cobb
(250K - 10K - 30K - 150K) x 5%
3. Allocation of bal. (204K / 3)
As allocated
Berg
Cobb
10,000
30,000
68,000
108,000
Total
250,000
10,000
30,000
3,000
68,000
71,000
3,000
68,000
71,000
6,000
204,000
250,000
17. The partnership agreement of Reid and Simm provides that interest at 10% per year is to be credited to each
partner on the basis of weighted-average capital balances. A summary of Simm’s capital account for the year
ended December 31, 2003, is as follows:
Balance, January 1
Additional investment, July 1
Withdrawal, August 1
Balance, December 31
140,000
40,000
(15,000)
165,000
What amount of interest should be credited to Simm’s capital account for 2003?
a. 15,250
b. 15,375
c. 16,500
d. 17,250
B [140K + (40K x 6/12) – (15K x 5/12) = 153.75K x 10% = 15,375
18. Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively. On May 1, 2003, their
respective capital accounts were as follows:
Blau
60,000
Rubi
50,000
On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an investment of
₱40,000. The new partnership began with total capital of ₱150,000. Lind’s capital account was credited equal to
her proportionate share in the partnership net assets. Immediately after Lind’s admission, Blau’s capital should be
a. 50,000
b. 54,000
c. 56,667
d. 60,000
Solution:
Total capital after admission
Multiply by: Interest of Lind
Capital credit to Lind
Contribution of Lind
Bonus to Lind
Multiply by: Old P/L ratio of Blau
Deduction to Blau's capital
150,000
1/3
50,000
(40,000)
10,000
60%
6,000
Interest of Blau before admission of Lind
Deduction to Blau's capital
Adjusted capital of Blau after admission
60,000
(6,000)
54,000
19. Kern and Pate are partners with capital balances of ₱60,000 and ₱20,000, respectively. Profits and losses are
divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who invested land
valued at ₱15,000 for a 20% capital interest in the new partnership. Grant’s cost of the land was ₱12,000. The
partnership elected to use the bonus method to record the admission of Grant into the partnership. Grant’s capital
account should be credited for
a. 12,000
b. 15,000
c. 16,000
d. 19,000
Use the following information for the next two questions:
On June 30, 2003, the condensed balance sheet for the partnership of Eddy, Fox, and Grimm, together with their
respective profit and loss sharing percentages were as follows:
Assets, net of liabilities
320,000
Eddy, capital (50%)
Fox, capital (30%)
Grimm, capital (20%)
160,000
96,000
64,000
320,000
Solution: (60K + 20K + 15K) = 95K total capital after admission x 20% = 19,000
20. Eddy decided to retire from the partnership and by mutual agreement is to be paid ₱180,000 out of
partnership funds for his interest. No goodwill is to be recorded. After Eddy’s retirement, what are the capital
balances of the other partners?
Fox
Grimm
a. 84,000
56,000
b. 102,000
68,000
c. 108,000
72,000
d. 120,000
80,000
Solution:
Payment to Eddy
Capital balance of Eddy
Excess payment to Eddy
180,000
160,000
20,000
Capital balances before retirement
Share in excess payment to Eddy
Capital balances after retirement
Fox
96,000
(12,000)
84,000
Grimm
64,000
(8,000)
56,000
21. Assume instead that Eddy remains in the partnership and that Hamm is admitted as a new partner with a
25% interest in the capital of the new partnership for a cash payment of ₱140,000. The bonus method shall be
used to record the admission of Hamm. Immediately after admission of Hamm, Eddy’s capital account balance
should be
a. 280,000
b. 172,500
c. 160,000
d. 140,000
Solution:
Eddy, capital
Fox, capital
Grimm, capital
Investment of Hamm
Total partnership capital after admission
Multiply by: Interest of Hamm
Capital credit to Hamm
Investment of Hamm
Bonus to old partners
Eddy, capital (before admission)
Share in bonus to old partners (25K x 50%)
Eddy, capital (after admission)
160,000
96,000
64,000
140,000
460,000
25%
115,000
140,000
(25,000)
160,000
12,500
172,500
The next two items are based on the following information:
The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share profits and
losses in the ratio of 60:40, respectively:
Cash
45,000
Other assets
625,000
Beda, loan
30,000
700,000
Accounts payable
Alfa, capital
Beda, capital
120,000
348,000
232,000
700,000
22. The assets and liabilities are fairly valued on the balance sheet. Alfa and Beda decide to admit Capp as a new
partner with 20% interest. No goodwill or bonus is to be recorded. What amount should Capp contribute in cash
or other assets?
a. 110,000
b. 116,000
c. 140,000
d. 145,000
D (348K + 232K) = 580K ÷ 80% = 725K capital after admission x 20% = 145,000
23. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other assets are
sold for ₱500,000, what amount of the available cash should be distributed to Alfa?
a. 255,000
b. 273,000
c. 327,000
d. 348,000
Solution:
The total loss on the sale is computed as follows:
Sale of other assets
Carrying amount of other assets
Total loss on sale
The partial settlement to partners is computed as follows:
Alpha
Capital balances before liquidation
348,000
Receivable from Beda
Total
348,000
Allocation of loss
[125K x (60% & 40%)]
(75,000)
Amounts received by the partners
273,000
500,000
(625,000)
(125,000)
Beda
232,000
(20,000)
212,000
Totals
580,000
(20,000)
560,000
(50,000)
162,000
(125,000)
435,000
24. The statement of financial position of the partnership of A, B and C shows the following information:
Cash
Other assets
Total assets
22,400
212,000
234,400
Liabilities
A, capital (50%)
B, capital (25%)
C, capital (25%)
Total liabilities and equity
38,400
76,000
64,000
56,000
234,400
The partners realized ₱56,000 from the first installment sale of non-cash assets with total carrying amount of
₱120,000. How much did B receive from the partial liquidation?
a. 25,000
b. 24,000
c. 16,000
d. 0
Solution:
A (50%)
76,000
(78,000)
(2,000)
2,000
-
Cap. bal. before liquidation
Allocation of loss
Total
Allocation of deficiency
Total
B (25%)
64,000
(39,000)
25,000
(1,000)
24,000
C (25%)
56,000
(39,000)
17,000
(1,000)
16,000
Totals
196,000
(156,000)
40,000
-
25. The statement of financial position of the partnership of A, B and C shows the following information:
Cash
Other assets
Total assets
40,000
720,000
760,000
Liabilities
B, loan
C, loan
A, capital (50%)
B, capital (30%)
C, capital (20%)
Total liabilities and equity
300,000
64,000
20,000
250,000
86,000
40,000
760,000
The non-cash assets are sold for ₱320,000. Partner C is the only solvent partner. In the settlement of the partners’
claims, how much additional contribution is required of Partner C?
a. 50,000
b. 30,000
c. 20,000
d. None
Solution:
Net proceeds
Carrying amount of all other assets
Loss
Cap. bal. before liquidation
Payable to partners
Total
Allocation of loss
Total
Additional contribution
Total
320,000
(720,000)
(400,000)
A (50%)
250,000
250,000
(200,000)
50,000
B (30%)
86,000
64,000
150,000
(120,000)
30,000
50,000
30,000
C (20%)
40,000
20,000
60,000
(80,000)
(20,000)
20,000
-
Totals
376,000
84,000
460,000
(400,000)
520,000
20,000
540,000
26. A, B and C are partners. Their respective personal assets, personal liabilities and partnership capital balances
are as follows:
Personal assets
Personal liabilities
Capital balances
A
90,000
75,000
150,000
B
240,000
150,000
(96,000)
C
180,000
216,000
210,000
Which of the partners is personally insolvent?
a. A
b. B
c. C
d. B & C
Answer: because C’s personal assets is bigger than his/her personal liabilities unlike A and B who have a
personal assets to cover their personal liabilities.
27. The equity section of the statement of financial position of the partnership of A, B and C shows the following
information:
A, capital (40%)
B, capital (40%)
C, capital (20%)
Total liabilities and equity
64,000
104,000
76,800
244,800
Non-cash assets are sold in installment. Cash distributions are made to the partners as cash becomes available. In
the second sale of non-cash assets, the partners received the same amount of cash in the distribution. In the third
sale of non-cash assets, the amount of cash available for distribution is ₱100,000. The carrying amount of the
remaining non-cash assets is ₱260,000. Under the cash priority program, how much cash is distributed to B in the
third installment payment?
a. 40,000
b. 38,400
c. 28,200
d. 0
28. Which of the following statements is correct?
a. The “Sales” account is used by both service and merchandising businesses in recording revenues from
primary business activities.
b. “Accounts receivable” is used only by service businesses but not by merchandising businesses.
c. The “Inventory” account is most likely to be found in the financial statements of a merchandising or
manufacturing business but not of those of a service business.
d. A manufacturing business cannot be organized as a sole proprietorship.
29. Recording assets at their acquisition cost (entry value), rather than at their net selling price (exit value), is in
line with the concept of
a. Single entity concept.
b. Historical cost concept.
c. Going concern concept.
d. Matching principle.
30. At the beginning of the period, Addy had a cash balance of ₱20,000 and a notes payable of ₱15,000. During the
period, Addy collected ₱11,000 accounts receivable, paid ₱8,000 notes payable, and issued additional notes
payable of ₱5,000 in exchange for cash. How much are the ending balances of cash and notes payable,
respectively?
a.
b.
c.
d.
Cash
17,000
20,000
28,000
36,000
Notes payable
20,000
12,000
12,000
20,000
Cash
20,000
11,000
5,000
beg.
Collection of accounts receivable
Issuance of notes payable
8,000 Payment of notes payable
end.
28,000
Payment of notes payable
end.
Notes payable
15,000 beg.
8,000
5,000 Issuance of notes payable
12,000
31. A business has total assets, liabilities, and equity of ₱10,000, ₱7,000 and ₱3,000, respectively, at the beginning
of the period. During the period, total liabilities decreased to ₱4,000 while profit was ₱5,000. How much is the
ending total assets?
a. 12,000
b. 11,000
c. 9,000
d. 7,000
Solution:
Assets =
Beg. 10,000
+1,000 (5000-4000)
End. 11,000 =
Liabilities
7,000
(4,000)
3,000
+
Equity
3,000
+5,000
8,000
32. Imagine you are a business manager. Your company has an opportunity to venture out into a new market with
a new product. However, your current resources are limited. In order to take the opportunity, you need to
discontinue the production of one of your existing products. Your company’s accountant provided you with the
following information to help you decide which product to discontinue.
Net sales (income)
Product A
5,000,000
Product B
3,500,000
Attributable costs (expenses)
(4,800,000)
(2,275,000)
Which product will you most likely consider to stop producing?
a. Product A
b. Product B
c. Product C
d. All them
Solution:
Product C
2,100,000
(630,000)
Net sales (income)
Product A
5,000,000
Product B
3,500,000
Attributable costs (expenses)
(4,800,000)
(2,275,000)
Product C
2,100,000
(630,000)
200,000
1,225,000
1,470,000
33. At the beginning of the period, Entity A’s notes payable had a balance of ₱1,200. During the period, Entity A
obtained an additional loan of ₱800 and made total payments of ₱500. How much is the ending balance of Entity
A’s notes payable?
a. 1,800
b. 1,500
c. 1,200
d. 900
Solution:
Notes payable
500
1,200
800
500
2,000
1,500
34. A business has total assets of ₱640,000 and total equity of ₱360,000 at the beginning of the period. The
business earns income of ₱220,000 during the period and reports profit of ₱80,000. There were no transactions
with the owner during the period. Total liabilities increased by ₱40,000 by the end of the period. How much is the
total assets at the end of the period?
a. 560,000
b. 440,000
c. 860,000
d. 760,000
Solution:
Assets =
Beg. 640,000
120,000 (40k+80k)
End. 760,000
Liabilities
280,000
40,000
320,000
+
Equity
360,000
80,000
440,000
35. Entity A received a 12%, ₱200,000, one-year, note receivable on October 1, 20x1. Entity A uses a calendar year
period. The principal and interest on the note are due on October 1, 20x2. How much is the interest income to be
accrued on December 31, 20x1?
a. 24,000
b. 12,000
c. 6,000
d. 0
SOLUTION:
Dec. 31,
20x1
Interest receivable (200,000 x 12% x 3/12)
Interest income
6,000
6,000
to accrue interest income earned but not yet collected